A New York judge has ruled against a startup testing the limits of copyright law in the burgeoning, controversial digital re-selling market.

US District Judge Richard Sullivan found in favour of Capitol Records in the record label’s lawsuit against ReDigi, whose platform lets users buy and sell “pre-owned” digital songs originally purchased on iTunes. Capitol, a unit of Universal Music, sued ReDigi in January 2012, arguing that the sale of used digital goods amounts to copyright infringement.

While rights owners get 70 per cent of each iTunes sale, they receive no income from ReDigi transactions, much like publishers get no proceeds from sales of secondhand books. ReDigi claimed that it sets aside 20 per cent of sales to distribute to artists, and that the original file is deleted once it its put up for sale. But that was not enough to convince either Capitol or the court.

In an 18-page decision, Sullivan dismissed ReDigi’s defence that digital reselling is protected under the “first sale” doctrine, under which people are allowed to buy and sell copyrighted works after they’ve already been put up for sale by the rights holder.

“The first sale defense does not cover this any more than it covered the sale of cassette recordings of vinyl records in a bygone era,” he wrote.

“While ReDigi 2.0, 3.0, or 4.0 may ultimately be deemed to comply with copyright law, it is clear that ReDigi 1.0 does not,” Sullivan added, referring to the second version of ReDigi, which is purported to offer more concessions to copyright holders.

ReDigi said it was “disappointed” by the ruling and that it plans to appeal the decision.

But ReDigi isn’t the only company with a stake in the court’s ruling; both Apple and Amazon have applied for patents covering technology related to marketplaces for secondhand digital goods, though it’s not yet clear how exactly they plan to introduce the concept.